Large shifts in cargo from the West Coast to the East Coast resulting from the completion of the Panama Canal expansion in 2016 are unlikely, Moody's Investor Service says in "Panama Canal Expansion: West Coast Ports Maintain Advantage, while East Coast Municipalities Benefit from jobs."
"In most cases, shipments from Asia to West Coast ports will arrive at inland destinations faster than via an all-water route to the East Coast through the Panama Canal," Moody's Analyst and report author Myra Shankin says. "Additionally, ports' long-term contracts contain minimum annual guarantees, which will protect the West Coast ports from swings in cargo volume and revenues. However, ongoing labor and operational difficulties at West Coast ports could shift cargo traffic if not resolved."
Some local governments located closest to US East Coast ports will benefit economically, however. Those gaining will be ports with water depths deep enough to accommodate the larger ships and with the best intermodal transportation connections.
"Even a muted uptick in cargo volume from Panama Canal activity will provide at least some increased revenue for local governments. Notable municipal 'winners' will be in the Norfolk, VA (Aa2) and Savannah, GA (Aa2) regions," Moody's Analyst and report author Coby Kutcher says. Charleston, SC (Aaa stable) will also benefit, Kutcher says.
While only a minimal impact for East Coast ports' cargo volumes is anticipated, Moody's says it's enough to increase revenue for these local governments. Also, the preparation work going on at the East Coast ports has already created economic activity that benefits the local governments. In addition, these municipalities are insulated from investment risk because they have not borne the costs of the canal expansion. Rather, their state, private developers or other parties have incurred the associated costs.
In the longer term as cargo volumes grow, more cargo will head to ports readied for the larger ships on both coasts. This additional traffic, as well as relocated or new businesses such as distribution centers, will bring permanent jobs and benefit the local governments of these East Coast ports with growing tax revenues.